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Monday, September 14, 2009

HASTINGS-ON-HUDSON, N.Y. (Fortune Small Business) -- John Halko was halfway through renovating an expanded space for Comfort, his mostly organic eatery in Hastings-on-Hudson, N.Y., when the credit crisis hit. His source of funding -- a home-equity line -- ran out, so he applied for a loan at a local bank. He was turned down. Halko wasn't ready to throw in the dish towel. His solution? The modern equivalent of an old-fashioned barn raising. Instead of soliciting neighbors to lift timbers, he asked them to open their wallets. For every $500 they purchased in "Comfort Dollars," his patrons received a $600 credit toward meals at the restaurant. As the community rallied around Comfort, Halko says, "it gave us hope." He raised $25,000 in six months, and the new, larger space - now called Comfort Lounge -- opened for business in May. Plenty of entrepreneurs are turning to their communities for support in these tricky times. As the recession wreaks havoc on America's economy, finding the money to launch, expand or even just sustain a small business is often a struggle. In the second quarter of 2009, venture capital funds raised the smallest amount since the third quarter of 2003, according to the National Venture Capital Association in Arlington, Va. Banks continue to pull credit lines and credit cards from many small businesses. Even proprietors who are willing to extract capital from their homes -- often their biggest personal asset - can't always do so, because the declining housing market has left so many homeowners underwater. But entrepreneurs are resourceful, and as the economic crisis forces them to seek new sources of capital, a growing number appear to be finding money in their own backyards. After all, local customers have a personal incentive to invest in their favorite businesses. And while no one is officially tracking the trend, anecdotal evidence suggests that the practice is growing. "There are no secure returns out there right now," says David Lavinsky, co-founder of Growthink, a venture investment firm headquartered in Los Angeles. "People are very willing to invest in their local community, especially if there is the possibility of return." In January 2009, Vox Pop, a popular bookstore and coffee shop in Brooklyn, was drowning in $190,000 of debt, including overdue rent, unpaid city health department fines and expenses from a failed expansion. Desperate, CFO Debi Ryan offered shares in Vox Pop for $50 apiece, calling community meetings and buttonholing patrons as they came through the door. Each share entitles its holder to a small dividend once Vox Pop's debt is paid. In 10 days Ryan raised $64,000 from newly minted shareholders -- enough to keep the business afloat. With that capital came an unanticipated bonus: Vox Pop's customers-turned-shareholders visited the shop more frequently than they had before, coming in to buy everything from their morning coffee to children's birthday gifts. "With this many shareholders we have a ready-made customer base," Ryan says. "Everyone wants to see Vox Pop succeed." Lavinsky says Ryan's observation is spot-on. "When a customer is a shareholder or supporter, ego is involved," he explains. "If I give you a check for $5,000, I don't want you to fail." Jeff and Tami VandenBerg, siblings who own the Meanwhile Bar in Grand Rapids, sold $5,000 worth of "Meanwhile Money" certificates as they were building their pub. That turned out to be a smart move. When they opened for business in 2007, certificate holders showed up in droves to spend their "money." In the bar business, crowds beget crowds. They've never left. Says Tami: "It really brought a sense of community ownership to the bar. People felt vested in us." For most small business owners, relying on the largesse of neighbors isn't a viable long-term survival strategy, but it can offer a shot in the arm during times of crisis or change. The VandenBergs, for example, used their community funding to install a tile floor and lighting while they waited for a bank loan to come through. "In the big picture it was a small percentage of what we ultimately spent," says Jeff. The largesse can be considerable. In April 2008, when Kim Harmson decided to open Kizuri, a fair-trade gift store in Spokane, she was able to raise $73,000 from 11 investors in the city's activist community at a low interest rate of 3%, with no prepayment penalty. Harmson admits she had many sleepless nights before the store opened last October. She need not have worried. Since Kizuri's launch Harmson has met or exceeded sales projections every month -- an accomplishment she credits in part to her community-funded business model. Consultants say honesty is the key to successful relationships with community patrons. As with any investor, a detailed business proposal should be offered, explaining why the funds are needed and what your benefactors will get in return. "You don't want to come across as a fly-by-night person looking for a handout," cautions Warren Neuburger, the CEO of 40billion.com, a startup Web site that promotes community-based business fund-raising on social networking sites such as Facebook, LinkedIn and Twitter. And though it's essential to be candid, do your best to avoid sounding desperate. "As a business you never want to say 'I'm hurting,' " says Paul Gregory, a lawyer who specializes in small business issues with the New York City firm Herrick, Feinstein. Larry Matthews, owner of Back Bay Grill in Portland, Maine, knew he had to install an air conditioning system in his restaurant to stay competitive. But amid deteriorating economic conditions he was reluctant to dip into cash reserves or to make a large purchase on credit. In June 2008, Matthews approached a group of his best customers, explained his need for cash and offered to sell them $1,500 restaurant gift certificates for $1,000 apiece. He raised the $12,000 he needed in one day. Then he faced an unexpected issue: As word of the certificates spread through the community, customers who hadn't gotten a chance to buy them began calling. They wanted in on this great deal. Some were upset that Matthews hadn't sought their support. "I was surprised," he says. "People got a real kick out of the idea. They liked that I wasn't relying on a bank." To Learn More click Here

Crowd Source Capital/ Crowd Funding - The Definition

Crowdfunding (sometimes called crowdfinancing or crowdsourced capital) is an approach to raising the capital required for a new project or enterprise by appealing to large numbers of ordinary people for small donations. While such an approach has long precedents in the sphere of charity, it is receiving renewed attention from entrepreneurs such as independent film makers, now that social media and online communities make it possible to reach out to a group of potentially interested supporters at very low cost. Crowdfunding is also being experimented with as a funding mechanism for journalism and music.

Crowdsurfing

A recent discovery by us of another movement existing alongside Crowdsourcing- "Crowdsurfing" - in the same space. Who knew?

Wikipedia: Crowdsurfing describes the process in which a person is passed overhead from person to person during a concert, transferring the person from one part of the venue to another. The "crowd surfer" is passed above everyone's heads, with everyone's hands supporting the person's weight. At most concerts and festivals the crowd surfer will be passed towards a barrier in front of the stage by the crowd, where they will be pulled off and put onto their feet by the security stewards. Then, they will be sent back to the side or rear of the crowd at the end of the barrier or they may be ejected from the venue (depending on the policy enforced).

Business definition: We would therefore like to welcome you to the world of the crowd surfer: a world in which a new generation of business and political leaders have learned how to harness the energy, ideas and enthusiasm of today’s empowered consumers. They are not manipulators, demagogues or mere populists. They have been smart enough to recognise that people around the globe – emboldened and enthused by a new spirit of enquiry and self-expression, and powered by the internet – have changed the rules of the game. They realise that surrendering absolute control – giving their customers, partners and employees a greater say in the way that their businesses operate – is paradoxically, the most effective way to manage their corporate or political destiny.

In Crowd Surfing, they examine what it takes to become a crowd surfer.

Subject: [Crowd Source Capital] New comment on How Matt Mickiewicz started 99designs.com and made....

תוכנית עסקית has left a new comment on your post "How Matt Mickiewicz started 99designs.com and made...":

I used 99designs and it is really awesome. The Learnable marketplace also sounds very compelling. I guess he finds himself good in creating marketplaces, although from my experience in creating hundreds of business plans to start-ups - creating a marketplace is x10 harder than a service/content website/application bcs you need to convince both customers and suppliers to use it, while one will not come as long as the other doesn't... so if he manages to create marketplaces - he really has a unique ability in hand. Way to go!!!

very nice post on this blog i like it. Now –a-days, every business advertises promote its products and services by creating a company’s website. There are many website designing company in Delhi which provides web design services, web development, web design and development and many more. After creating your website the first way you can make the internet work for you is thorough SEO work.SEO is vital to your success with internet marketing.

Yes, it's a clone. But everything will get cloned and honed, that's the law of the internet. Indiegogo is better because it has 4 different ways of payment, including Paypal, and projects can be made internationally, unlike on Kickstarter. So I, who live in finland, could start a project on Indiegogo, but not Kickstarter. Indiegogo is totally needed and has differing market segment.

Then again, Indiegogo has clunky website, you have to look the status of the projects one by one, while on Kickstarter you can see them on the small reviews. Also, the website is a bit too similar.

They also differ, as you noted, on the payment system. Indiegogo made it so that project always gets any money donated. That isn't really a problem, because the project manager can just promise that even if the amount is not met, he'd work towards the goal with the money he got. He could do it partially, and ask more again there for finishing or he could sell ads on the beginning for the rest of the money. I am thinking of getting money for a high-tech product using Indiegogo, the incentive would be to release all software as Free Software, and such stuff...

Saw your post on Crowdsourcing resources and figured I'd point you towards our product, UserVoice. We allow you to crowdsource customer feedback through an idea submission and voting system. We are different from the competition (in many ways, but primarily) in that we limit the customer's votes to 10, with 3 max spent on each idea. This forces people to really consider their choices and use the currency of votes wisely...bringing the best content to the top. As customers only get votes back when an idea is completed, it also encourages the company using UserVoice to be consistently listening, responding to, and acting on customer ideas.

Give it a look if you get a chance - I'd be happy to provide more info if you're interested.

Hi - I just stumbled across your blog and like what you are doing. I have a deep interest in crowdsourcing and crowdfunding... I am starting a crowdsourced business consulting firm as we speak. We should catch up at some point and share ideas.

I'm a big fan of this blog so don't mean to be critical, but one thing in this post caught my attention.

Because of how MTurk lists the totals, the fact that the number of tasks went from ~192k to 177k doesn't necessarily mean that 15k tasks were done in that short time period. I think that if you post that someone can do your single task and allow it to be done 1000 times, the count goes up by 1000. You could then click cancel and it will go down. So a lot of the churn you see can be driven by that.

Panos Ipeirotis of NYU has the following info on MTurk activity:http://hyperion.stern.nyu.edu/mturk/... as well as top requesters.http://hyperion.stern.nyu.edu/mturk/requesters.php

Other than that small point, I think this post is dead on and that businesses certainly have a use for MTurk. Unfortunately, MTurk's interface is still kind of clunky and businesses have to go through intermediaries like CrowdFlower or Smartsheets to get stuff done. It's hard to just crowdsource a single one-off task.

I came across your site by chance today....you are doing a lot of great stuff....anyways you might want to check out the vpanel of feb 26th at www.shiftworldwide.com and the presentation I gave on March 10th at IIMA in Vancouver (www.iimaonline.org).

Rick

Rick Goossen, CEO

T:604-685-7784

C:604-785-6334

Skype:rickgoossen

"Good for Business"

Anonymous said...

ArtistShare has been doing it successfully for years. They seem to have a more realized version and the product seems to be more mature and realized. I agree, just selling a CD isn't cutting it anymore.

There is another concept that works well at the moment and that applies to any type of art (including music, movies, books, painters, etc). Basically, artists set up a fundraising goal as well as a deadline to raise the money. If they reach the fundraising goal by the deadline, the money is transfered to them, otherwise it is given back to investors. What's more, crowdfunders are not actual investors, since what they get back in exchange is rewards based on how much they gave, like for instance if they give 5€ to a book project they'll get a digital copy of it, and if they give 20€ they'll get the actual signed copy.I found a website following that model called FansNextdoor.com.Any thoughts on this model?

Thanks for the post. You’re right, we’re really trying to shift focus from technology with Dot and encourage people to think about how their mobile can make life better and more fun. We’ve got some great suggestions so far and it’ll be interesting to see what else people want to see.

Hi guys, thanks for covering this! I just wanted to let you know that there's an updated version of this interview on Brand-e (the original version included some copy that wasn't exactly what I said ;-) amended version here http://brand-e.biz/outsourcing-to-the-masses_3903.html it would be great if you could update the article here as well... thanks a lot, cheers, Fran

And made me think you might like to know about this ...Ponoko - the world's easiest making system- An online marketplace for everyone to make stuff, locally.- Designs are instantly priced online, then made and delivered on demand.- For creators, digital manufacturers, materials suppliers and consumers.- Over 30,000 user generated products made to date.- Launched in 2007 at TechCrunch40 in San Francisco and reported in The New York Times, The Wall Street Journal, Financial Times, The Economist, BBC News, The Globe and Mail, WIRED Magazine, The International Design Magazine, MIT Technology Review, Boing Boing, Engadget, Core77, etc, etc.- You can find out more here: http://www.ponoko.com/about/the-big-ideaI'm looking forward to reading your next edition! :)

Best wishes,

Olga

Olga SasplugasMarketing

Anonymous said...

And it's happening for filmmakers on IndieGoGo. Exciting stuff. (www.indiegogo.com)

Hi James,Thanks for the Crowd Source Capital coverage. You can check out our Facebook Application here if you're curious. Through this app, fans don't have to leave Facebook to take action (contribute, share, etc.) We were one of Facebook's "Facebook Connect" launch partners; so all activity you and your fans take on both IndieGoGo hits the newsfeeds and walls on Facebook. Cool stuff.

CheersDanaewww.indiegogo.com

Anonymous said...

Never mind the potential liability Prosper.com is facing after having sold almost $180 million in unregistered securities...

Cambrian House is still alive, we have a crowdsourcing technology platform built on years of experience and we're currently pleased about how everything is going. You can check it out at www.cambrianhouse.com and our platform at www.chaordix.com

Don't believe everything you read on the internet, that's just silly ;)Blue

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.Betty